This morning we have received another profit warning from Provident Financial, a core holding in the CF Woodford Equity Income Fund and the CF Woodford Income Focus Fund, which has led to a substantial share price decline.

The problems that Provident Financial has faced in recent months concern its household consumer credit division (which extends small, short duration loans to households in non-standard credit markets), and in particular, the company’s recent decision to fundamentally change the way that the division operates. Earlier this year, management announced that it would transition from a self-employed agent model to one in which lending is conducted by full-time employees. The rationale for this move was partly operational, as it should ultimately allow the company to more effectively manage its customer relationships, but it also reflected the changing regulatory landscape in which the company operates. As such, we supported the change and trusted management to execute it successfully, given the track record the team has built at the company over a very long period of time.

In June, it became apparent that the transition was not going as smoothly as anticipated, in a profit warning which reduced guidance for that division’s current year profitability from c. £110m to c. £60m. I spoke at length to management about the issues that were being experienced and was reassured that the business knew the causes of the problems and what to do to rectify them. I assumed that the company was guiding towards a worst-case scenario for the additional cost of executing the transition effectively.

Today’s announcement undermines that assumption with a further significant reduction in profit guidance – the consumer credit division is now forecast to post a loss of between £80m and £120m during the current financial year. Operational disruption has continued, with the newly organised sales force seemingly failing to collect existing debts to the extent that had been anticipated or create as much new business as had been forecast. Importantly, this is not a credit quality problem – it is an operational issue which has been self-inflicted by the company. Credit quality across all of Provident’s divisions remains very good. Indeed, across the UK, I believe that credit trends are improving, as evidenced in the recent bank reporting season.

Nevertheless, this is an extremely disappointing announcement today and I am surprised that the transition has failed so significantly. Long-standing chief executive, Peter Crook, is standing down with immediate effect to be replaced on an interim basis by executive chairman, Manjit Wolstenholme.

One other issue was announced this morning which is worth noting. The FCA is investigating a repayment option plan product offered by Provident’s Vanquis division. This is effectively a forbearance product which gives customers with volatile financial circumstances the flexibility to manage their credit and maintain their credit rating very effectively. The FCA asked the company to stop selling the product last year and conduct a consumer contact exercise which has now been completed. The FCA investigation continues and has exacerbated the negative market sentiment towards the company this morning. The company is co-operating fully with the FCA and maintains a good relationship with its regulators. My view is that the profitability of this product may be impaired in the future but this does not appear to be a redress issue. Vanquis customers value this product – that is why they buy it.

The coalition of these issues has, however, resulted in a significant hit to profitability this year, and a cancellation of the interim dividend that it was planning to pay. It is also unlikely to pay a final dividend as it prudently moves to maintain the capital base of the business.

Before we turn to the stock market’s reaction to today’s news, it is worth reminding investors that the rest of Provident Financial is unaffected by today’s announcement. Vanquis Bank, Moneybarn and Satsuma are all trading in line with management’s expectations, which is important from a fundamental perspective, when considering the stock market’s reaction.

Despite today’s profit warning, the company is still expected to post a profit at the group level of at least £80m this year. Looking into next year, there is still a lot of uncertainty around forecasts but if we assume some stabilisation in the consumer credit division with a smaller customer base, along with other conservatively-struck assumptions about the rest of the business, the group should deliver pre-tax profit in excess of £300m in 2019. This equates to approximately 160p in earnings per share in 2019, which at the time of writing represents a price / earnings ratio of around 3x. If we assume the resumption of dividends with a 50% pay-out ratio, an 80p dividend would equate to around 15% dividend yield.

These statistics illustrate the extent of the market’s over-reaction to today’s news, in my view. I’m not trying to dress this up as anything other than bad news – the company has given the market several reasons to be emotional. I do, however, believe it is critically important to maintain a disciplined, fundamentally-based perspective in my investment analysis. In all situations, it is vital that I do not let emotion influence my judgement.

With that in mind, I believe Provident Financial shares started the day undervalued, and have become even more so as a result of the market’s reaction to today’s news. I am hugely disappointed by what has happened to the consumer credit division but I continue to believe that it will, ultimately get back on track (this business has been around for more than a century, by the way, and I believe it will be around for many decades to come). When it does so, Provident Financial’s share price deserves to be appreciably higher than it is today.

There is no smoke without fire, the comments made re career move are just as frightening as the whole picture, we have all lost money on PF’s poor management of the programme change, some more than others and some in multiple funds. the COO should have fallen on the sword first…

I notice you don’t mention in your comments above that after your discussions with Provident Financial’s management in June this year you added to your investment in the company, thus compounding your bad decision to support the stock when it reported adversely on its position earlier.
Come on Neil, humility is one of the prerequisites of a good investment manager and you are demonstrating none of it! Accept you have been wrong, rekindle your core skills as an investment manager (and not a start-up entrepreneur) and get our fund back on track.

I am disappointed too. But for different reasons. Only yesterday, it was being reported that about 7 per cent of the shares in PFG were out on loan. A significant number of investors were therefore accurately predicting that a second profit warning was going to follow the first. Mr Woodford and his team, however, confidently and wrongly made the opposite prediction. Only a month or so ago, we were told on this blog that further investment in the company was being made for the fund, despite the first profit warning, on the basis that a price of (about) £20 a share represented a clear buying opportunity. At one point today, following the second profit warning, the price was (about) £5 a share. Why did Woodford Investment Management get it wrong, when so many others interested in the company were able to get it right?

It seems to me that those in the know were more closely monitoring what was actually happening on the ground. (Were they talking to the employees and those self-employed agents who have left?). I would expect my fund manager to be closely monitoring the whole portfolio-that’s what I pay him for- but especially a Company that has just issued a profit’s warning and accounts for over 4% of the fund.

“”Why did Woodford Investment Management get it wrong, when so many others interested in the company were able to get it right?””

Because they don’t appear do any financial analysis on the setors and companies they invest in (sounds like a rather brash statement but is it, based on the consistent set backs) – certain sectors and companies offer a persistent low level of return on capital and carry excessive risk to changes in markets, technical (pharmaceutical failures) and financial conditions (debt and leverage).

This is not really an equity income fund as such, more a venture capital fund with 45 of the stocks in the very long list of 135 as unquoted entities which are difficult to really value in a normal market.
The other things that are apparant are that the purchases are of so many cyclical stocks at the top of their cycle which often leads to disappointment when a profit warning arrives — there is nowhere for the stock to go but down, and in 10 or so of the larger companies down a lot.
Take for example the latest investment in builders — these companies have just enjoyed a massive 8 year boom on the back of buy to let, which government is now calling into question and just as the housing market is stalling. There could be big disappointments in he offing if TW-BDEV-BLND miss targets.

The heavy concentration of Biotech companies leads to further disappointment when a drug fails (statistically 1 in 5000 passes) and with hundreds of millions invested in them it’s kind of a two way switch. Drug development costs have risen 10 fold in the past years and the drugs service smaller markets (there are few if any blockbusters anymore).

In addition, many of the companies are highly leveraged (the AA for example – there are few more highly leveraged companies in the FTSE save a bank perhaps). The market is rightly unforgiving when a company has a declining share of a market and at the same time has to service a massive debt.

Capita had a very simple and clear declining pattern of profits, rapidly rising revenue and rapidly rising borrowing – it seemed obvious that it was buying the business at huge cost to shareholder funds.

The investment here is more a wider scattergun approach which hopes to work on the basis that with 135 stocks – eventually you find enough winners to make it come good — unfortunately that goes somewhat against proven investment theory that diversification, whilst important, does start to dilute rapidly beyond about 15 to 25 uncorrelated positions.

A puzzling element of all this is the spread of investments across the funds — I would have thought Equity Income should have a focussed and concentrated list of steady income bearing listed companies, and the PCT has all the risk capital companies including all the unquoted companies.
It turns out that there are more unquoted companies (45) in the Equity income fund, than in the PCT fund.

It’s hard to fathom what the objectives of the funds are, when the investments don’t seem to match with the naming of the funds.

It might be a good idea to stop launching any more new funds and bring the current one’s into line with their descriptions and reduce the number of holdings down to a manageable level where the staff can actually focus on them — perhaps 5 companies per employee, who works tirelessly on assessing the risks, the opportunity and the financial position of each company.

I could be wildly wrong on all this but I’m not sure I am or there wouldn’t be so many collapsing investments.

PF has a great business model. The key is do they have liquidity – can they borrow at a reasonable price? I think they can. This is no Bear Stearns (where I worked next to the finance desk) or Lehman, it’s more like a Standard Chartered or Glencore. I own PF through Woodford Funds, but am a massive direct buyer at todays ridiculous price. Given operational / staffing issues it will take time to return to £30+. But at £5-£7 I’ll forsake dividend income (a sensible realistic management response), for massive capital growth potential. Just need to be patient! Btw I paid 680p today, as an opening position, and will buy more.

I appreciated and enjoyed Neil’s commentary on PFG today. Some questions come to mind:

1. It seems that several hedge funds were short PFG. What do you think they saw? Were Neil and team aware of the same factors? You had spoken to management and had come away reassured. I realize that Woodford funds do not short, but based on the hedge funds’ view, did the business have shortcomings (no pun intended) that our team should have been aware of? Are we aware of any new weaknesses now?

2. The recent price drops of stocks like CPI, AA, PFG, ALM have been dramatic. There was bad news in each case, but do such huge drops suggest that market volatility is greater now than, say, pre-crisis?

Broadly speaking, hedge funds and other market participants that engage in shorting, tend to operate on much shorter-term time horizons to our own. That often means they are looking at very different factors and drivers to us.

Regarding share price moves, market-wide volatility has actually been unusually low for much of this year but there have been some extreme moves in individual stocks. Markets have always tended to over-react to bad news and if this habit has become more acute over time, it has been coincident with a period of rising market turnover (i.e. shorter holding periods).

So, in the few weeks between Provident Financial’s (PF) previous profit warning and the one announced today, you and at least one other experienced and successful professional fund manager met with PF’s management and were sufficiently reassured to stay invested and, in your case, to buy more of their stock. One might question that reassurance, at least in so far as buying more stock, which today is another 60% under water. Maybe that is market over-reaction, we will see. PF’s woes announced today indicate that their situation of a few weeks ago was much worse than was either realised or revealed; I wonder which. Today their CEO jumped or was pushed, but he was one of a management team. Were PF entirely open in their meeting with you and do you trust them?

Well another fine mess to go with Capita, Astra Z , the Rolls Royce sell off (possibly emotional), Allied Minds, North west thingamy bob and a few others. Against a few successes. Overall not great ! But hey I’m still marginally ahead across all three funds but other main stream gains have been missed given the index(s) present position. Just shows past performance and all that….. is it time to cut and run ?

I am very disappointed in Neil Woodford. This company has been showing a downward trend for weeks and to buy into it showed poor judgement. I hope better use is made of investors’ funds in future to recoup losses.

You say ” a downward trend for weeks”. If your investment horizon is merely weeks, then not only do I have no sympathy for you, but would advise you to reflect on the foolishness of buying any Woodford fund.

As of today, I am looking to purchase more of his funds as a number of line items (the Funds’ assets) have become cheap.

Just to put it in perspective, recall the sub-prime horror stories of 2007-9. Just about all the complex securities that fell from Par to a few cents, have now repaid at Par! It has taken a few years, yes, but there was huge value to be collected on the way. You simply cannot in any meaningful way judge a fund by any holding period less than 5 years and I would look really for a 10-20 year time frame accompanied by statistics on volatility and drawdown.

I am becoming increasingly concerned by the mistakes being made. I don’t say this lightly having followed Neil for many years (and my late father before me back to the nineteen eighties).
There is something clearly wrong when a company which makes up 4% of your portfolio loses 65% of its value in a day, due to problems many of which you already knew about. Where was the risk assessment? Were there no other companies which could provide similar returns with less potential downside?
The old mantra that “We don’t believe that today’s fall in share price is justified etc etc ” is something I would only expect to hear once in a blue moon, not on a regular basis.
Has Neil got his fingers in too many pies?
Is he investing in too many companies?
Is there anyone at Woodford Investment Management challenging Neil’s decisions?
When a footballer has a bad game but thinks he was brilliant you know he is going nowhere. The same applies in all walks of life.

I note Neil states “across the UK credit trends are improving”. Coincidentally, today I received an e-mail from Zopa (P2P lender) stating exactly the opposite. So who is right and who is wrong? I have my suspicions.

Soon after the Eq Inc Fund got going I e mailed the team because I was nit happy about the lack of divi progression.

Despite reasuurances given, we have seen the quarterly rolling divi go down for a while. What was outlined when the Eq Inc Fund started has NOT been delivered on the income front, and this latest imho misjudgement by the team in topping up recently will make matters worse.

To recover even on the capital front will take the Prov. quite a while.

Neil Woodford why you are still defending PFG? with a drop of 66% in a single day and over 80% over the couple of weeks is a clear signal something is really wrong. How can debt collection accumulate up to 80-120million loss? You seem to think that in 2019 there will be a huge profit?

Look at the bigger picture, the entire UK economy is in a Debt loom bubble! Everyone is in debt! Inflation is high, Pounds are low and people in the UK are still not cutting back on spendings and rely on credit card to make ends meet. Please wake up Neil Woodford! Please stop being Naive! Please stop looking at the numbers and get back to the very basics!

It worries me that investment decisions are based on “assumptions “. Given the level of investment in Provident Financial, I would have expected a more rigorous assessment re the first profit warning. So how do you know that the current issues re debt collection are operational as opposed to default?

Investment decisions will always be based to some degree on assumptions – and judgements. Our judgement about the current operational issues being about collection rather than about credit quality are based on everything that we know and understand about the situation.

Thanks for the reply. But it just increases my concern. My understanding is that an assumption is based on something that is accepted to be true, or certain to happen, without proof. Which is the opposite of what I would expect of a due diligence process. I have read a number of the comments here and from following the progress of the Woodford funds over the last 2 years, I have become convinced that given the huge number of companies and diversity of technologies that are being pursued that any rigorous due diligence would be a stretch .

You have raised a concern here that I seems other investors share. We think it is the wrong conclusion to draw, however, and are working on ways to reassure you that the team we have in place is appropriately resourced, delivering the rigorous due diligence you would expect and ultimately allowing Neil to deliver the performance to investors that they have come to expect over a very long period of time.

Of course, you would expect us to say that, but we genuinely believe it is the case.

There’re were rumours circulating well before June that all was not well a PF, the hedge funds already had their claws in. I hoped that the June update was a bit of a bluff, but don’t suppose that’s Neil’s style. The hedge funds have been increasing their shorts since they and got it absolutely bang on. Another heavy blow. You cannot call this any other way that being bad call, a very bad one. Late last year the fund bought into Aviva but sold fairly quickly, unusual for Woodford. That share has increased about 15% since then. If only…….

Worked for the company as an Agent for 23 years didn’t take up the CEM role. It will never work cannot believe you couldn’t see this coming. Bad times ahead for Provident. Managed really incompetently quite sad to see.

I can’t believe this; “and [I]was reassured that the business knew the causes of the problems and what to do to rectify them. I assumed that the company was guiding towards a worst-case scenario for the additional cost of executing the transition effectively.” Really, they told you everything was fine and you believed them? And you “assumed”! We trust you with our money because we believe you will act with due diligence and check it out. If I did my job like you did yours and I “assumed”, I would not be in it long. And why does the whole financial sector cloak its failures in this slippery language? You messed up big – full stop.

If I hear another fund manager say that they’ve ‘met the management recently and remain convinced by the investment case and fundamentals’. Tip: If you meet management of a commercial enterprise they will be very well rehearsed to feed you spin and want you to leave the premises feeling warm and cosy. The immediate objective of such a meeting is to help encourage a) don’t sell and b) buy more.

You’ve got to start by looking at the business assuming what they’ve told you is inaccurate or exaggerated, and only after then make you own conclusion to the investment case.

Is Neil delusional? I expect a little humility rather than repeating his June blog in which he said he had talked to the company management and was very confident of improving performance and the problem was only transitional. He was so confident to confirm he was buying more of this company.

I’m an amateur investor. I trust professionals to make and take sound judgements and am very unimpressed that Woodford Fund didn’t flush these emerging problems out when meeting the management team recently. Lots of balm; not much contrition

I’m no legal, financial or corporate governance expert, but you paint a picture in which the Woodford team was mislead by the management of PF. Is this the correct interpretation of your update? If so, is there a case for you to get our money back?

Can you explain to us if you feel you were actually mislead (or not)? and if you were, why is that not something you would look to take legal action on?

That is the wrong conclusion to draw. We do not believe we were misled – indeed, it would be illegal for a company to deliberately mislead its shareholders. We have had a long and supportive relationship with management team.

I fear you are being too generous to PFG when you say you do not believe you were misled. I personally found it very telling that, when you read the transcript of the analysts’ conference call that took place on 25 July, the CEO and CFO were asked, in terms, to say whether the deterioration that had been seen in June had continued through into July. The CFO pointedly said he was not prepared to say anything about the July numbers. But by that point he must have known that the July numbers were going to be catastrophic. When you read the rest of the transcript in the light of that knowledge, it is hard not to think that, in its overall tone and content, the remarks of the CEO and CFO were thoroughly misleading.

Ok, agreed that Mr Market can overreact at times and given that Neil thinks the business can earn c.£300m in 2019, surely now is the time to buy it with a market cap of £900m? Right? But no mention of further buys at this crazy level! Why not? If Neil really thinks the numbers still stack we should get out the elephant gun.

Immediately after the first profits warning there was an article in the Times business reporting comments by the PF self employed agents on a staff forum. This clearly flagged up the operational chaos of the reorganisation and also a mass exodus of these staff to competitors taking their customer contacts with them. Whist Mr Crook may have been reassuring in his meeting with NW this openly reported story of what was really going on at PF told a different story. Was this a good time to add to PF holdings in the funds?

I also read that comment and the personalised nature of the collection and the movement of collectors to the competition also struck me as very worrying and extremely difficult to replace especially in the short term let alone the guerrilla ctactics these departing staff seem to have undertaken in today’s press. Not wishing to be appear clever, as i have many losers too, but I sold all of the Corportate debt my wife and I owned that very day… buying more stock at that time was mad. BUT lecturing a Fund manager of Neil’s experience on how to meet up with companies is ludicrous advice. The breadth of holding and enthusiasm for minute companies in the funds, I do watch with concern though and hope it all comes good… he does have a wonderful record…

The WoodfordFund ‘logo’ includes the phrase, ‘expertise reinvented’.
There does not appear to very much expertise being displayed in recent months, from the Woodford Investment team.
Mr Woodford’s quote that the shares of Provident Financial were ‘undervalued’ BEFORE yesterdays precipitous fall, is arrogant, to say the least.
I am a small investor in the so called Equity Income Fund, (against my better judgement) as a result of my SIPP Manager’s investment decisions.
I have commented both to Him and also on this forum, that these ‘Income Funds’ are nothing of the sort.
Mr Woodford chooses to invest ‘unwisely’, in my opinion for the most part, in highly speculative early stage companies, many not widely traded.
There have been several notably ‘disappointments’ here.

In addition, these funds invest in some large caps, but once again, lack of due diligence and research has resulted in significant losses. Capita, Next come to mind.

There are several well managed FTSE100 companies that Mr Woodford continues to avoid, that consistently generate good profits and dividends, that any Income Fund, should in all probability invest in.

The notable investment failures, perhaps underline the folly of having over 100 different companies with these funds.
It would appear that the management team have stretched their ‘expertise’ too far, in being able to competently manage these investments and thus prevent such high profile mistakes.

Perhaps by attemting to be ‘different’, the team has lost sight of what should be their principle motivation;
to generate income for their investors.

If this is no longer the principle motivation of the team, then please explain that this is so, to those of your investors, who still have faith in your ‘expertise’.

So the fund gets booted out of the income sector because it doesn’t pay enough income. Then a large dividend payer within the fund drops 80% over 3 months, all the while the fund manager adds to the position using his superior access to management, which should in theory give him an edge. This is in addition to the numerous howlers over the last 12 months.
And this fund manager still runs £10bn. How stupid are we investors in this fund?!

Yes agreed. Of course it depends when you bought in. If you bought in recently like myself the Mr Woodford’s foolishness has cost you significantly. Mr Woodford is paid handsomely to avoid such blunders. There is really no excuse.

If the analysis of Provident Financial Group is correct and on conservative assumptions – it would be on an EPS of 160p in 2019 which puts it on a rating of 3.7x. Assuming the business is worth 10x EPS, it would represent an upside of 170%. The question is why don’t the fund adhere to the principles that Warren Buffet preaches – ‘“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.. The fund could meaningfully BUY more shares in the company if the intrinsic value isn’t affected. The fund is after all, a long-term oriented fund and short-term fluctuations in prices shouldn’t affect it’s style.

Neil’s concluding comment suggest the stock is great value today . Does he intend to increase the holding size at this value price ? If he still believes in the business surely today is the very time to buy more . Perhaps however (quite sensibly ) he does not intend to do so and his comments are an attempt at softening the blow . I suspect the problems at PF are far from over and another halving in price may occur within 12 months . If he hasn’t the conviction of his words he should sell the stock and find a better home for the capital .

One new addition to the commentary – I have made my other views on the Eq Inc update – they are not favourable.

How many analysts are employed by CFW to run £10B? From what it seems on the website not many – and most are old buddies

Look I do value the opportunity to have my say – and I do plan to stay the course – but please please Neil can’t you just get it together and do yourself justice – most of us still believe in you – we can be patient but the time has come now to lose your complacency and prove you haven’t lost your ability

I have a small pension, and my core holding is the equity income fund, so I have lost hundreds of pounds this week.
I am grateful for the latest very level headed comments from Neil Woodford.
In previous commentaries Neil has remarked on the “social responsibility” that Provident contribute by enabling “doorstep lending” to people who are often marginalized through poverty and unable to access conventional credit. This offers a route away from private money lenders and the abuse and intimidation used to to collect debts, and cannot be all bad.
Deciding to replace its “door to door” approach with an internet collection method is in my opinion unbelievably naive and ignorant of the situation most of its customers find themselves in. Did they really think that people who are financially excluded would simply switch to paying by internet? Apparently they did. That in my mind is the most idiotic strategy and suggests they have in reality very little understanding or knowledge of their customer needs and resources.
I am not posting this comment in personal criticism of Neil Woodford, but I would question why the Woodford Funds team did not see the risks present in a century old approach by a firm suddenly deciding it will all be marvelous if they switch to e-collection?
Its reported that Crook earned £6M last year form Provident, so I guess he is the winner. I doubt he was single handedly responsible for this firms failure to recognise the needs of the poorest people in society.
I’m not about to sell the Equity Income Units; overall the fund will always make better decisions and limit risks than I would buying individual shares.
But this has knocked my confidence in the Woodford Investment team. I would ask them the same question – did they really expect people who could not access ordinary financial products, relied on a home visit to make a payment, building trust with the agent over time, to seamlessly move to internet payment, requiring a phone, an internet connection and most importantly of all, the self discipline to prioritise repayment in the face of multiple and competing financial pressures?
Very easy to say in hindsight, but I would like to hear how the Woodford Team assessed the risks involved in this change strategy and why they thought that collection rates would be maintained?

The amount of a company you own is too large. Did you really need to own 25pc of Provident? Even if you did want to sell when these problems arose you wouldn’t have the liquidity. You are committed to the companies regardless. I don’t know any fund managers that regularly take such large stakes. The future is always uncertain, but by taking such large stakes it means you can’t adapt accordingly.

Mark Barnett has a larger stake (albeit initiated by NW when at Invesco). You appear to be questioning, therefore, both their suitability as fund managers.

I would also say that anyone can see what a fund holds (top 10 at any rate) and the holding of PFG was clear for all to see. So why did you buy into the fund when you seem to object to its modus operandi?

Furthermore, the Woodford funds publish their entire holdings so it is not as though you could not have known of any hidden risks (such as other stocks that might be connected or correlated with PFG). Other funds publish only their top 10 which accounts for generally about 30% of the assets in the fund. Consequently, you know little of the other 70% other than sector or geography. It is typically not sectors which suddenly blow up, but individual stocks.

I am sorry it it seems that I sound like a mouthpiece for the fund – I am not. I lost money too yesterday, but it is clear what NW is doing, and why, and the medium and long term metrics are undeniable. And when I say metrics, the one that is the “past month’s performance” ranks outside the top 50 in terms of importance!

You must have pretty low expectations to consider medium term metrics being about 25% over 3 years as being in any way decent. I expect my funds to achieve at least 50% over that time frame. We can’t tell yet and over 5 to 10 years the Woodgrove funds could really pick up in performance, but so far its not looking good.

I did own the income fund for about 6 months until early this year but wasn’t to happy with the style and so sold it when I had made 7% or so – thankfully

If you expect 50% over 3 years, you will often be disappointed. Do not be blinded by the general equity rally the past few years – this was a bounce from a low base (March 2009). The Dow, for example, has returned about 8.25% per annum the past 70 years. That would be if you had been invested every day. If you time it and miss out on some of this, you may have periods of outperformance, but with a lower overall return. This is a polite way of saying that your long term goal of 16% (if that is really what the goal is) or so is a futile exercise, in particular that you have failed to note that 8% returns in a 0.5% rate environment are akin to well over 10% in a “normal” rate environment (from the point of view of how useful the returns are to a sensible individual!).

16% compounded for 70 years would result in a multiplying of your money by 32,513. Really? Even the most famous hedge fund managers who had made such returns in previous eras (Soros, Robinson, Howard, Odey et al) are currently struggling to make over 5% per annum and have done for quite a few years.

You also say that “you weren’t happy with the style”. What was it that changed? NW bought a portfolio and

I’m afraid my patience has run out with both the Patient Capital fund where I invested at launch, and with the core fund, which has now slipped into negative territory on a 12 month basis.

Provident is a sub prime lender with poor management. It’s easy to say that this is being wise in hindsight, but I remember they also had severe problems some years back when a company I owned was working with them. It all seemed very chaotic back then.

I agree with many of the comments above, and I think this is the latest in a lengthening list of poor investment decisions at Woodford. I an pulling my pension funds out.

His initial comments on PFG says it all. They will not change their focus and methodology and I suspect the vast majority of fund holders would wish as much. This is what a fund is about – not individual stock mishaps. It is this that has allowed NW and a very few others to build such a 30 year track record.

Suppose the 30 year record is one of 2% per annum out performance on average against the FTSE, then that amounts to a 73% out performance (assuming rates of 10% and 8% respectively). Stick those results in a pension fund and make monthly contributions and see your retirement income about 40% higher for the rest of your life. A reward I would take for the price of the odd PFG.

You might also consider the other side of the coin – the stocks that NW has NOT bought that have blown up such as Carillion (2016/7) and BP (2010) and the banks (2007/17). Add to this retailers and miners etc. This is why you see the 2% out performance over a long period.

Fortunately I have way more in my Marlborough UK Microcap fund, this has exceeded the growth of Woodford Income Fund since inception (of the Income Fund) by about 25% and has treated me historically very well, I know a spread of risk is good but I am seriously contemplating transferring or reducing out of Woodford, this is not a knee jerk reaction as I have been unhappy with the performance for some time, there have been too many big failures across the board.
An FA friend of mine once said that there was a rumour that the stock picks at Invesco while NW was a manager were made by others, I have wondered for some time how true that may have been

Why does the ‘income focus’ fund now hold a business that does NOT pay a dividend and as such has no income stream? There is reference to reinstating the dividend in the coming years but this is pure speculation.

The fund is able to hold positions that do not deliver an income, even though the vast majority of assets are invested in income generating securities. Provident Financial did pay a dividend and we believe that it will again when the consumer credit division stabilises.

Hi Mitch,
Thank you for taking the time to reply. Lets hope that it does indeed reinstate the dividend within the next couple of years, if it does the current stock price will be somewhat of a steal.
Regards
Jamie

I bought very substantially into Woodford Equity Income at launch and topped up subsequently, on that time horizon it’s certainly been no disaster so I don’t say this with bitterness but I’m now done and out, this was the last straw and I’ve now sold out. The fund is completely unrecognisable to me. When I purchased it every stock in the top 10 holdings is one I would have been happy to buy and hold for the long term, and it was quite honestly very defensively positioned. If a fund is buying stocks of companies I wouldn’t want to own then the only excuse can be that the valuation somehow justifies it – for instance buying into Game when we’ve seen the demise of HMV and the move of purchases to the digital domain seemed like an obviously bad business to be in but that didn’t mean there wasn’t money to be made in the short term if Woodford’s valuation was right. Of course it wasn’t. So now the fund is full of stocks that I think are frankly bad businesses even if some might turn out to be good investments, and I’ve lost faith in the team after such a long succession of bad valuations or failures of governance. The stocks seem increasingly speculative and risky as you try to recover ground from previous losses, and unlike the initial positions of the fund seem likely to underperform the market if things turn down. It’s not lack of patience as prices go through natural fluctuations, but if I don’t like the stocks I need to have complete confidence in the team valuing them and that’s no longer the case. Topping up on this stock and failing to act to preserve our money when the hedge funds were circling was the last straw. With NWBO and Allied Minds we were also told the hedge fund short sellers were targeting your “profoundly undervalued” stocks. That’s one phrase I won’t miss coming back here to read repeatedly used.

I have a holding in the Patient Capital Fund, currently accounting for about 6% of folio, purchased, not at launch, but in tranches, at a discount to NAV. Consequently, I am above water even after the setback. It is a long term investment and I shall probably add to it whenever similar opportunities arise. It is certainly not a ‘Sell’ at present and any pundit who says otherwise will lose my respect. There are some valid points on this thread about research and investment decisions, ultimately made by the fund manager. Funnily enough, it crossed my mind when I read about the PFG transition it might be difficult to implement, but would I have sold a holding? Hindsight is comforting, but deceptive. Neil Woodford has offered his explanation and calls for “humility” are misplaced. Do those posters wish to precipitate a run on the fund? A fund manager must remain confident in himself to retain credibility. Woodford certainly has my confidence.

And another point, perfectly sound financial institutions can go under during a bank run. Questions has to be raised about PF’s funding. I suspect that is part of the reason for the dramatic falls in share prices.

I find it incredible that the amount of holdings in this fund keeps being questioned ???? Come on Neil keep them happy reduce the amount and increase the size of each one that’s left???? why isn’t my tenner that I invested at the beginning worth a million yet??? Oh and by the way I would never have invested in burford capital !!! Whatever did you do that for ??? Quite a few posters here also thought you were mad to dump BT . Not long ago someone was suggesting carillion , BTW I topped up yesterday and I have put in for more today . I also bought a few PFG today. Come on folks look at the great holdings in this fund and remember what drew you to Mr Woodfords in the first place ? A fantastic track record. As for employing his “buddies” ? I always . thought he had cherry picked the best that he had first hand knowledge of. Personally I’m here to stay and will take the knocks along the way ..

since Wednesdays large drop there has been a mini recovery, it’s up from about 50% of its lows, already another 20% plus today. Still a long way to go, and hopefully we have not sold! Maybe pick up a few more? I guess we will find out later in the fund price. I have bought more holdings in the fund at £1.27, I’m still well above water, but at that price I thought it was an opportunity.

I can understand meal being annoyed at the situation, in effect he was lied to, but full due diligence was not applied.

Calm down, folks. It’s a marathon and not a sprint. If you’re in the business to sprint, look somewhere other than Mr Woodford’s funds. I don’t know how many more times he has to make this point in public before it truly sinks in.

So the rather appropriately named Mr Peter CROOK has departed (and gets to keep the £35M that he has earned during his tenure) and the share price has ‘bounced’.
I rather suspect that the activities of those hedge funds that had such large shorts on the stock, may be the reason.
The question remains for me at least;
are the Woodford Funds, ‘Income’ funds or Venture Capital funds?
I think that your investors are entitled to know what they are actually signing up for, when investing with Woodford.

We agree that our investors should know what they are investing in – that is one of the key reasons why we fully disclose the portfolios each month. Furthermore, there is plenty of information in the ‘Funds’ section of our website (https://woodfordfunds.com/funds/) which provides clarity on the objectives of each fund and the distinctions between them. There is also information about who each fund may or may not be suitable for.

If, having digested all of this information, you’re still unsure whether the funds are suitable for your own circumstances, we would recommend you seek financial advice.

Thankyou for your response.
I think that it would be fair to say that I have long since determined that the funds that you are currently offering are NOT suitable for my needs, which is essentially income in retirement. For the most part I have very little information available to me on so many of the large number of companies in this fund, some of which are unlisted and many of which are in a very early stage of their development and thus fail to provide ‘income’. As other experienced fund managers have written in the past, if you do not really understand the nature of a particular company or investment, do not invest in it. At present I continue to have a very small holding in your ‘equity income fund’ (against my better judgement) as a result of the default investment policy that my IFA has adopted in part of my SIPP. I have in the past requested that he reconsiders his investment in this fund. I shall await his next revue and see whether he will continue to invest in the fund, or in the light of the recent unfortunate circumstances, withdraw from the fund. I respect that he must consider the needs of ALL his clients, not just mine!
Kind Rgd

Having worked in the home credit business successfully for a number of years it is of no surprise that the Provident has been brought to its knees by incompetent and greedy management. It has been apparent for a few years that the humble customer, ( who lets face it make all the profits for the company and lifestyle of its stakeholders) has been viewed as a cash cow. Had senior management been bothered to actually get out there on the ground with their reps and engage with the customer Provident would still be a successful and profitable entity. The whole restructuring of the company has been a totally calamitous event which did not have to happen. Good experienced staff have been dispensed with and loyal customers treated with contempt. I do believe that with the right leadership the company is salvageable but would require immediate but very simple action. Happy to elaborate with an action plan.

The funds may invest in overseas securities and be exposed to currencies other than pound sterling

The LF Woodford Income Focus Fund will be invested in a concentrated portfolio of securities – the fund is not restricted by reference to any geographical region, sector or market capitalisation

The LF Woodford Equity Income Fund may invest in unquoted securities, which may be less liquid and more difficult to realise than publicly traded securities

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund, and the Prospectus which, along with our terms and conditions, can be obtained from the downloads page or from our registered office. If you have a financial adviser, you should seek their advice before investing. Woodford Investment Management Ltd is not authorised to provide investment advice.

You should note that capital is at risk with these investments and you may get back less than you invested. The value of the fund or trust as well as any income paid will fluctuate which may partly be the result of exchange rate changes.

The price of shares in the Woodford Patient Capital Trust is determined by market supply and demand, and this may be different to the net asset value of the trust.

The Woodford Patient Capital Trust currently intends to conduct its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

Young businesses have a different risk profile to mature blue-chip companies – risks are much more stock-specific, which implies a lower correlation with equity markets and the wider economy. Long-term outcomes are more binary – extremely attractive rewards for success but some businesses will inevitably fail to fulfil their potential and this may expose Woodford Patient Capital Trust investors to the risk of capital losses. As it can take years for young businesses to fulfil their potential, this investment requires patience.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund’s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at www.fundinfo.com.